Lesson 2- Moving Averages

Moving averages are one of the most basic tools in technical analysis. The moving averages are a lagging indicator and do not predict trend, but confirm trend once it has been established. The calculations smooth out day-to-day price fluctuations and reduce noise.

You can use moving averages in simple, exponential or weighted form.

1.Simple -- computes the averages (mean) of the closing price over the chosen amount of periods (tick/bars) and displays in a joined smooth curving line. Short term: 10-30 days, Intermediate term: 30-100 days, Long term: 100-200+. Sum of all closing prices divided by number of closing prices in specific period.
2.Exponential -- applies more weight to recent prices in comparison older prices. Found by applying a percentage of today's closing price to yesterday's closing moving averages.
3.Weighted -- gives current data more weight than older data. Older data is considered of less value/significance. Each price in a series is multiplied by the number of periods preceding it: the old the price the smaller its multiplier.

What can I use this for? The moving averages can be used for various task, but it is suggested that they are used with other technical indicators. The great thing about moving averages is that they simplify data for the eyes.

1.Support -- look for price reversing when it moves close to a longer term moving average line.
2.Resistance- when the price comes close to the line of moving average, traders will sell in hopes of taking profits at the top of a natural resistance level.
3.Crossover -- Moving averages can be used as basic buy/sell points by detecting crossovers when the moving averages line crosses above and below the price bars
4.Crossover on Moving Average Ribbons -- When two different moving averages crossover one another, this can signal a possible reversal.

You can use MarketClub to analyze moving average. Select the studies list and choose moving averages. You can add, delete or cancel various moving average. Simply fill in period, and choose moving average form. Repeat previous steps if you would like to add multiple moving averages.

If you are interested in moving average you may also want to study the ADX indicator.

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[inovideos]

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[headhuntaz]

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@arier3011 :

oh, I didn't know about this, I was just of the opinion that while in those days, fundamendal investors were made fools of, but now even the technicians are made fools of, so basically once a conventional indicator fails most people will be fed up of the indicator, or don't close their positions due to them hoping it will change, then they lose money and realise "if only I had immediately reversed my positiion and gone short instead of staying long". thanks a lot for your reply!

[arier3011]

@gengarjetty Yes indeed, it`s called divergence, it indicates a trend reversal (trend outbreak).The false signal is neccesary due to limitations in the technical indicators parameters itself, so it has to perform a false signal, actually it`s not a false signal , it`s a correction in the indicators.But you noticed right,google divergence moving average divergence convergence (MACD).Good luck friend.

[gengarjetty]

@arier3011 :

actually, I've noticed usually after the false signal in a long/ short signal will immediately give an amazing short/long signal after the fail.

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[arier3011]

What a load of crapp, anyone who tries to explain a technical indicator NEVER uses a real live chart, because after the whole chart (on which you are educating) has completed his course, almost every idiot can do a technical analysis on it.

Every technical indicator gives also false signals, this is where traders fale.

Plus lacking the test fase of a combined or single technical indicators over a longer period , does make it a single moment phrase and not a usefull long term trading system.